Property fund investors are suffering as the value of bricks and mortar falls.

Prices of once high-flying trusts have collapsed and three of the biggest life companies have put up the shutters on withdrawals, forcing holders to wait up to 12 months to cash in.

Units in the two biggest property unit trusts, Norwich Union and New Star, are some 20% lower than a year ago, Scottish Widows and Friends Provident have a six-month block on property life and pension fund withdrawals to prevent them being forced to sell properties cheaply to raise cash, while investors in Aegon Scottish Equitable face a 12-month clampdown.

But as the big funds freeze, smaller firms are waiting in the wings to pick up bargains. Last week, UK-based "value investor" Laxey Partners, which specialises in buying assets cheaply to sell on at a profit, held a London presentation of a proposed property fund for professional investors.

"It's looking for cheap deals from forced sellers. And there will be more like Laxey, so some must think there is value in the market at present prices," says Steve Marriott at IFA Bestinvest. "We've seen some panic selling by investors who joined the property party recently but, while it's not yet right to re-enter these funds, it's too late and pointless to get out at these levels."

Darius McDermott at IFA Chelsea Financial Services believes the credit crunch has squeezed two years' pain into a few months. "You have to look at why you were buying property in the first place. If you thought it was the hot asset of the moment, then it's not surprising you could have losses. But property is meant for risk spreading. It does not run hand in hand with equities and bonds. It should give a long-term income stream that is inflation-proof," he says.

The insurance funds hold almost no cash to meet investor exit demands but unit trust New Star has some 20% of its £1.5bn property fund in cash. "We now value the fund fortnightly, and the falls have flattened out, so valuations have stabilised. Our trust deed allows a 28-day freeze on withdrawals, but we have no intention of doing this in the foreseeable future," says New Star.

Norwich Union's property unit trust also has a 28-day clause. But, after selling two office blocks last month, it believes it can cope with encashments.